Question

Which of the following is true of LIBOR? It is a rate used when borrowing and lending takes place between banks It is subject to favorable tax treatment in the U.S. The LIBOR rate is free of credit risk A LIBOR rate is lower than the Treasury rate when the two have the same maturity g

Answer 1

Answer: It is a rate used when borrowing and lending takes place between banks

Explanation:

The London InterBank Offered Rate (LIBOR) as the name implies, is the rate with which banks ( usually major global banks) use to lend short term funds to themselves.

As it is used by major banks, it is internationally accepted as a benchmark rate that banks can use to lend money to amongst themselves. This rate is not free of credit risk even though this risk is minimized. LIBOR is not lower than the Treasury rate when the two have the same maturity.